A Fine And A Ban On Working In The Securities Industry Don't Sound That Bad To Sergey Aleynikov

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Poor Fab, but it could be worse. Michael Lewis has a heartbreaking, enraging story in Vanity Fair about poor Sergey Aleynikov, the former Goldman programmer and current Dostoyevskyan holy fool who was sentenced to federal prison for eight years for stealing computer code from Goldman, won a complete victory on appeal, was released, has lost his life savings, and is now being prosecuted under state law just because Goldman, or someone, but probably Goldman, really hates him. It is troubling stuff not least for Lewis's clear implication that a jury trial may not be the best way to arrive at the truth regarding complex financial-technological questions. E.g.:

The jury consisted mainly of high-school graduates and lacked anyone with experience programming computers. “They would bring my computer into the courtroom,” recalls Serge incredulously. “They would pull out the hard drive and show it to the jury. As evidence!” Save for Misha Malyshev, Serge’s brief employer, the people who took the stand had no credible knowledge of high-frequency trading: how the money is made, what sort of computer code is valuable, etc. Malyshev, who’d been subpoenaed as a witness for the prosecution, testified that Goldman’s code was of no use whatsoever in the system he’d hired Serge to build—he insisted that it had never been his plan to import code from anywhere because he wanted to build Teza’s system from scratch. He wanted something flexible and fast, that he could continuously upgrade. Even if offered Goldman’s entire high-frequency-trading platform he would not have been interested—but when he looked over he saw that half the jury appeared to be sleeping.

What is with juries and their lack of interest in the esoterica of open-source code and synthetic structured credit? Lewis attempts to right this wrong by "conven[ing] a kind of second trial" in a steakhouse, inviting "half a dozen people intimately familiar with Goldman Sachs, high-frequency trading, and computer programming" to serve as a jury. Spoiler: this more delicious1 but less legally binding trial finds him not guilty. Funny how that works.

It's a sad story and Goldman come off like terrible, evil, vindictive, dishonest jerks in it.2 Felix Salmon draws some conclusions from that, and from Fabrice Tourre's recent Goldman-funded unpleasantness:

The big difference between the two cases is that while Tourre was defended by Goldman Sachs, Aleynikov was prosecuted by them: Lewis leaves the reader in no doubt that the decision to prosecute, along with all the supporting arguments, while nominally taken by the FBI, was essentially made by Goldman Sachs itself. The irony is painful: the government, acting against Goldman Sachs, could only manage a civil prosecution. But Goldman Sachs, acting through the government, managed to secure itself a highly-dubious criminal prosecution, complete with an eight-year prison sentence. ...

[T]he lesson of Sergei Aleynikov is that if and when the laws get beefed up, the banks will simply end up taking advantage of those laws for their own vindictive purposes, rather than becoming victims of them. Given the ease with which Goldman got the FBI to do its bidding, one has to assume that, most of the time, the government will be working on the same side as the big banks, rather than working against them. Do we really want to give those banks ever more powerful weapons?

Maybe. An alternative lesson might be that drawing lessons about financial regulation from the decisions of sleepy juries is a perilous pastime. You should think of any of these cases as being a combination of, like, Predictable Law plus a large random term. Aleynikov was sent to jail for a crime that an appeals court decided was not a crime; the legal lessons from that are murky though, yes, "don't piss off Goldman" is probably one of them. Also that same appellate court upheld another trading-code-stealing programmer's conviction for a similar crime yesterday. And Fab is one of probably hundreds of humans who sold securities in 2006-2008 and whose employers have now paid nine-figure settlements because of not-quite-admitted-but-come-on misrepresentations in the sale of those securities; he's the only person who's gone to trial individually. And yesterday at this time you'd have to say that the outcome of his trial looked pretty uncertain - his lawyers were confident enough not to call any witnesses.

The coin was flipped and it landed the wrong way for Fab, and the even wrong-er way for Aleynikov, is perhaps the lesson to draw here. And the right way for Ralph Cioffi and Matthew Tannin, and for lots of other people whom you haven't heard of for exactly that reason. That is not an especially useful lesson.

If you've worked in the financial industry and been frustrated by the low level of sophistication - "Wall Street greed" for Fab, gawping at hard drives for Aleynikov - and coin-flip outcomes of financial trials, the Supreme Court of Michael Lewis alternative sounds tempting, no? Not just for the crab platters I mean. Doesn't it sound sensible to let accused financial miscreants explain their actions to people who can actually understand them, and then let those people decide whether they were okay or not?

On the other hand there are some pretty obvious problems with a system where accused financial criminals are tried by a jury of financial industry employees. Mainly that people sort of hate financial industry employees, and that the "everyone's doing it" defense would carry a lot of weight with that sort of jury but is not necessarily, y'know, a good defense. Maybe everyone shouldn't have been selling synthetic CDOs to muppets! But they were.

The right goal would be a system of financial regulation and enforcement that reflects the values and substantive desires of people other than (exclusively) financial industry professionals, but that is sophisticated enough about the financial industry to distinguish actions that genuinely violate those values from sketchy-looking but basically normal activities. That's a pretty hard goal to achieve! The FBI's and Justice Department's performance in the Aleynikov case suggests we're not quite there yet.

Michael Lewis: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer? [VF]
The legal jujitsu of Goldman Sachs [Reuters / Felix Salmon]

1.Ooh guess the restaurant:

The restaurant was one of those old-school Wall Street places that charges you a thousand bucks for a private room and then more or less challenges you to eat your way back to even. Food and drink arrived in massive quantities: vast platters of lobster and crab, steaks the size of desktop computer screens, steaming mountains of potatoes and spinach. It was the sort of meal cooked decades ago, for traders who spent their days trusting their gut and their nights rewarding it, but this monstrous feast was now being served to a collection of weedy technologists, the people who controlled the machines that now controlled the markets, and who had, in the bargain, put the old school out of business. They sat around the table staring at the piles of food, like a conquering army of eunuchs who had stumbled into their enemy’s harem. At any rate, they made hardly a dent. Serge, for his part, ate so little, and with so little interest, that I half expected him to lift off his chair and float up to the ceiling.

I assume you can't take "Wall Street" literally, though like Harry's and Bobby Van's and of course Delmonico's are nearby anyway. Someone guessed The Palm, which sounds right. There's a Palm with private rooms across the street from Goldman's headquarters; I hope they used that one.

Also: what a paragraph!

2.Let me just put out there now that, if I'm ever hauled off to prison for some hard-to-understand federal crime, Goldman did it! Avenge me!


Sergey Aleynikov Is Dancing Again

One thing that I may have mentioned here is that, before I was lured to the blogging industry by the outrageous lucre on offer, I worked at this little establishment called Goldman Sachs. One thing that I probably haven't told you, but that I've mentioned to a few friends and co-workers, is that due to some frankly inexplicable confusion, the time between my telling people "I am leaving to go work for Dealbreaker" and my being escorted out of the building by active-duty Navy SEALS was somewhat longer than you might expect (viz. several nanoseconds). One thing that I've never told anybody, so let's keep it between us, is that I made good use of the delay to download certain files to a flash drive. I won't discuss all the details, since I'm using some of those files to set up my own high-frequency insider trading fund, but I will mention that with the right codes the voice recorders in the GS elevators can be accessed remotely.* One reason I never told anyone about this before is that Goldman takes it badly when people take stuff with them on the way out, and has a tendency to react by having them imprisoned for the better part of a decade. After today, though, it looks like I'm good to go:

Sergey Aleynikov Came Thisclose To Spending The Next Eight Years In Jail

One of my favorite recent acts of journalism is the Journal's amazing series about how everything you could possibly do is a federal crime, which is both a true fact with serious policy implications and also an important thing for you to remember if you want to stay out of federal prison, which I do; you may disagree but you are wrong. Here's a pro tip though that you will not (yet) find in the Journal series: there is a decent chance that reading Dealbreaker is a federal crime where you are. The reason for that is that there is a federal statute that says that if (1) there is a computer and (2) someone tells you not to do a thing on it and (3) you do that thing on that computer, then (4) PRISON! And if you work in finance then (1) yes, (2) maybe?,* (3) yes, and (4) no but it could happen. An important qualifier to that is: as of yesterday, if you're in California, feel free to read Dealbreaker from your work computer. Hell, go nuts, check Facebook. That's what a Federal appellate court ruled yesterday, finding against the government, who were prosecuting a guy named David Nosal for violating his employer's computer use policy. Here's how the court characterized what the government wanted: